The Global Light vehicle sales in August attained a value of 6,388,865 Units in 2020
The indicator recorded a historical decline (CAGR) of 3.95% between 2017 to 2020
Global light vehicle capacity
The light trucks market includes all light commercial vehicles (LCVs) and light buses and coaches (LBCs). This includes pick-ups and vans but excludes sports utility and similar vehicles. The market value is calculated in terms of the manufacturer’s selling price (MSP) and excludes all taxes and levies.
The industry’s rule of thumb is that utilization needs to be sustained at a minimum viable level to achieve profitability due to the high fixed capital costs and variable costs associated with manufacturing. Excess capacity is a two-way drag on profitability – from the cost perspective as outlined previously – and because, as basic microeconomics teaches us, excess supply brings downward pressure on prices.
Factors affecting sales of global light vehicles
Bankruptcies of GM and Chrysler saw those companies reorganize and contribute significant reductions in light vehicle manufacturing capacity, with concomitant reductions in upstream capacity in the supply base. In Europe, at the time the focus was on supporting demand with scrappage incentives. As result, the financial crisis only saw a net reduction in capacity in Europe.
Oil prices have been another form of exogenous shock with which the industry had had to contend with on occasion. The shock of the 1970s prompted a switch to fuel-efficient cars and left US OEMs floundering with capacity for gas-guzzlers while the likes of Honda with its ingenious Civic cleaned up. A more pernicious effect of an oil price shock could be to send an entire economy grinding to a halt, due to rising input prices, precipitating economic recession with negative knock-on effects for vehicle demand.
Today the balance has tipped to the extent that over two-thirds of sales in the US are light trucks (pickups, SUVs etc.). This shift has effectively left the industry with a glut of car manufacturing capacity. While the effect has been somewhat mitigated by increasing usage of car-like platforms for crossover utility vehicles (CUVs) and on some pickup, it’s still left a surfeit of car capacity.
Too many OEMs
First, there’s the issue of hubris whereby industry leaders have the utmost confidence in their ability to navigate their company through the sector’s structural deficiencies. This confidence can manifest itself at the time of new product launches, where each and every new product is going to change the world, be a ‘home run’ for the company, and transform the company’s fortunes. The trouble is that such home runs are few and far between1 and there are a dozen or more other companies who are steadfast in the belief that their new product programs are going to bring transformational change.
With limited volume growth available in the established automotive markets, automakers have sought out growth opportunities in new markets. This globalization of the automotive industry has been enabled by the reduction in trade barriers – through geopolitical groupings such as NAFTA, the EU, Mercosur, and the ASEAN countries - and fomented by the industry’s ‘Build where you sell’ mantra. The automotive sector is always looking for the next big volume opportunity to alleviate competitive pressures in Triad (Europe, US, and Japan) markets. The BRICs (Brazil, Russia, India, China) have long been identified as that opportunity and still provide much upside. Economic and political frameworks are critical determinants of demand prospects and industrial development. The economic activity combines with projected average income growth and sizeable populations to create transportation demand that can be met with automotive products.
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